A ready-to-eat cereal manufacturer faces two types of consumers,adults and children,having the following schedule of gross surpluses for each additional unit of cereal consumed.

\begin{array}{l}\begin{array}{lll}&\text { Marginal } & \text { Marginal } \\&\text { surplus } & \text { surplus } \\&\text { this ounce } & \text { this ounce } \\&\text { provides } & \text { provides } \\\text { Ounce of }&\text { adults in } & \text { children } \\\text { cereal }&\text { cents } & \text { in cents }\\\hline\text { First } & 20 & 40 \\\text { Second } & 16 & 32 \\\text { Third } & 12 & 24 \\\text { Fourth } & 8 & 16 \\\text { Fifth } & 4 & 8 \\\text { Sixth } & 0 & 0 \\\text { Seventh } & 0 & 0\end{array}\end{array}

Cereal costs 10 cents per ounce to produce. Begin by assuming that the manufacturer has full information about types because adults only by fiber-rich cereal and children only buy sweet cereal (with marshmallows).
A)3 ounces of fiber cereal sold to adults for 48 cents; 4 ounces of sweet cereal sold to children for $1.12.
B)3 ounces of fiber cereal sold to adults for 36 cents; 4 ounces of sweet cereal sold to children for 64 cents.
C)5 ounces of fiber cereal sold to adults for 60 cents; 5 ounces of sweet cereal sold to children for $1.20.
D)5 ounces of fiber cereal sold to adults for 20 cents; 5 ounces of sweet cereal sold to children for 40 cents.

The "Lemons Model" Predicts Quality Deterioration in the Used-Car Market

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